Contractor s Legal Guidance Note

Transcription

1 Contractor s Legal Guidance Note Spring Edition 2010 Express Acceleration This Spring edition of the Contractor s Legal Guidance Bulletin picks up where the Autumn 2009 edition left off, by moving on from a basic explanation of the concept of acceleration to an examination of both legal and practical issues that may arise in connection with this phenomenon. The Autumn 2009 edition assumed the perspective of the contractor who is directly contracting with the developer. This Spring edition retains that perspective and considers two more usual forms of 'express' (otherwise known as 'directed') acceleration: first, the performance of the same work within an intentionally shorter period, and second, the performance of increased or delayed work within the same period.

2 A framework for project management This edition begins by setting out a set of general criteria, in the form of a textual algorithm (see below), as a working framework by which decisions on the alternative courses of action to be taken where there is a direction to take accelerative measures. Given, in reality, the wide variety of forms which contractual provisions will take, and the wide variety of factual circumstances out of which contractual provisions will arise, these suggestions cannot be regarded as universally applicable. But it is hoped that they will commend a particular line of inquiry in response to a request to accelerate. In short, as ever, the content of this note is no substitute for specific legal advice of an experienced practicing lawyer specialising in this field. Rather, it is a general starting position for a reasoned consideration of the underlying legal issues. 2

3 Express power to accelerate? According to the above framework, the first question arising for consideration is whether or not there is an express provision in the contract for acceleration; and if so, whether it has been properly invoked in the particular case. If there is neither then in the face of a request to accelerate the Contractor may wish to consider entering into a discussion with the developer with a view to negotiating acceptable terms for acceleration. Whether or not the Contractor is willing to entertain the (non-binding) request for acceleration, he may wish to inform the developer of his view as to the non-binding nature of the request. This response may take the form of a formal challenge or it may simply be communicated in the course of the negotiations, or by other informal means. Contractor responsible for underlying delay? If an express power to require acceleration has been exercised then the following question arises: whether or not the contractor is delayed by events or circumstances for which the contractor is legally responsible. This may not be the case at all. There may be no critical delay but the developer may simply wish the same scope of works to be completed within a shorter period. This is what we have defined as the first type of acceleration. Alternatively, the developer may wish to reduce the scope of works and may request that the reduced scope of works be completed within a commensurately reduced period. Strictly speaking, this later case does not really involve acceleration, although it will require a revised programme, and it may occasion additional cost for the contractor. In either case, almost invariably, the contractor will be entitled to compensation of some sort, and the contractor will often be strictly obliged to notify and to promote this entitlement early if it is to be sustained. At the same time, the acceleration clause will require appropriate accelerative measures to be devised and executed. Occasionally, the developer may be entitled to require uncompensated acceleration. These circumstances might involve a manifestation of the second type of acceleration: where the contractor finds himself in a position where the works are in delay and the contractor cannot persuade the developer that this is due to matters for which the developer retains legal responsibility in other words, that the delay is excusable. In this case, as alluded to above, the contractor may be confronted by an acute dilemma, namely: whether or not to accelerate? In this situation, the key questions appear to be this: Does the risk of liability for delay arising from a refusal to accelerate and a failure to obtain an EOT outweigh the inevitable costs occasioned by the accelerative measures? Will those measures be wholly successful in extinguishing the delay? If the advantages of acceleration outweigh the disadvantages then, all other things being equal, the appropriate course will be to devise and execute suitable accelerative 3

4 measures. And the converse applies: if the costs of acceleration outweigh the likely liability for delay then the rational course may be to challenge the request. Default curing under the FIDIC Books If actual progress is too slow to complete within the Time for Completion, and/or progress has fallen (or will fall) behind the current programme, other than as a result of excusable delay, then the Engineer may instruct the Contractor to submit a revised programme and supporting report describing the revised methods which the Contractor proposes to adopt in order to expedite progress and complete within the Time for Completion. Unless the Engineer notifies otherwise, the Contractor shall adopt these revised methods, which may require increases in the working hours and/or in the numbers of Contractor s Personnel and/or Goods, at the risk and cost of the Contractor. If these revised methods cause the Employer to incur additional costs, the Contractor shall, subject to Sub-Clause 2.5 [Employer s Claims], pay these costs to the Employer, in addition to delay damages (if any) under Sub-Clause 8.7. Thus, generally speaking, the Contractor must bear the risk and cost of accelerative measures that are necessary to overcome actual or anticipated delay to Completion. Sub-Clause 8.6 [Rate of Progress] does not alter that principle. What it does do is provide a basis and mechanism for the Employer to recover for additional costs incurred by the Employer where, absent Sub-Clause 8.6, no such legal right may exist. In this regard, one should keep in mind that a Contractor whose progress is too slow to complete within the Time for Completion may or may not be in breach of contract. This will depend on a number of factors, including the existence of any interim obligations (eg, sectional completion), other requirements set out in the Particular Conditions, and the seriousness of the programme slippage. Pre-emptive acceleration Under the FIDIC Conditions of Contract there is scope for a shrewd Contractor to avoid responsibility for additional costs incurred by the Employer. If the Contractor decides, himself, to submit a revised programme in order to comply with his primary obligation to complete the Works within the Time for Completion then he may head off any instruction under Sub- Clause 8.6. By doing so, the Contractor will not necessarily attract a liability for these costs by other means, since all he is doing is discharging the obligation under Sub-Clause 8.3 to submit a revised programme whenever the previous programme is inconsistent with actual progress or with the Contractor's obligations. Sub-Clause 8.3 does not contain an indemnity provision akin to that contained in Sub-Clause 8.6. Furthermore, any instruction to undertake accelerative measures that differ from those encompassed in the voluntary revised programme may constitute a Variation for which a right to an increase in the Contract Price arises. 4

5 Conclusion Responsibility for the financial consequences of acceleration is ultimately a legal question, albeit that it is often dependant on technical issues concerned with the existence, factual causes of and consequences of underlying delay to the progress of the works. The existence, nature and applicability of the developer's power to require acceleration on the part of his contractor is fundamental to any determination of the legal consequences of the putative exercise of such a power. Other considerations and issues (as highlighted in this note) are also worthy of careful attention, all in the context of the governing law of the contract, and common sense. A robust entitlement to recover compensation for express acceleration can only benefit from a suitably vigorous and well-timed legal evaluation of the legal merits of the situation and advice on the optimal strategic options. Too often the lawyer is called to the scene only after the contractor has staked his credibility on a particular characterization of his right to be compensated for accelerative measures, in circumstance where prior professional legal advice might have identified other, better strategies. This bulletin does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered Pinsent Masons